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Why automakers are pushing to change EV tax credits they've been seeking for months

Washington — Democrats on Capitol Hill are poised to begin consideration of sweeping climate and tax legislation as soon as Saturday — and it includes an expanded tax credit for electric vehicles that automakers have long pushed for. 

But a leading industry group representing car companies — including Ford Motor Co., General Motors Co. and Stellantis NV — is now pushing to change that provision due to stringent battery mineral and production requirements they say would make it partially unusable for years. 

To qualify for the full $7,500 credit, automakers would have to build batteries with increasing amounts of critical minerals extracted or processed in any country the U.S. has a free trade agreement with. They would also need to build batteries with increasing amounts of North American-made components.

The problem: Critical EV battery mineral production and processing is still largely concentrated in countries that don't qualify. 

John Bozzella, CEO of the Alliance for Automotive Innovation, said automakers are investing in EV battery supply chains in the U.S., "but it's also a change that doesn't happen overnight."

"We support (100%) Senator (Joe) Manchin’s goal to reduce dependence on foreign nations for minerals," Bozzella said in a statement. "But a likely result of this bill (as currently constructed) is that a significant number of consumers will not be able to take advantage of this credit in the early years when it is needed the most."

Daisy Jennings-Gray, an analyst at Benchmark Mineral Intelligence who studies supply chains for lithium, cobalt, nickel, graphite and others crucial for EV batteries, agreed: "I would say the majority of EVs aren't going to be seeing this EV tax credit apply to them."

Chinese dominance

The U.S. is far behind in the global race to mine and process the critical minerals needed for electric vehicle batteries. While mining is spread around the world, one country controls most of the processing power that can turn those raw materials into usable battery components: China. 

The U.S. is home to only 4% of the world's share of lithium processing, 1% of nickel processing and 0% of cobalt processing, according to data provided by Benchmark Mineral Intelligence. 

In comparison, China controls 59% of the world's share of lithium processing, 68% of its nickel processing and 73% of its cobalt processing. 

There's a similar issue with battery and battery component manufacturing. The U.S. builds 1% of anodes, 1% of cathodes and 7% of battery cells in the world. China builds 89% of anodes, 80% of cathodes and 79% of battery cells. 

That's because China — where EV sales are three times higher than in the U.S. — has long been investing state resources in building an EV supply chain. "We've completely slept-walked into this predicament that we're in," said Abigail Wulf, vice president of critical minerals strategy at Securing America's Future Energy (SAFE).

"They saw a leapfrog opportunity. They have documents in English laying out their strategic priority to take over the clean energy economy, and that's essentially what they've done."

At least a portion of those minerals, including nickel and lithium, can be sourced from countries like Australia, Chile or Canada that already have free trade agreements with the U.S. 

But "we're already seeing a significant supply deficit" of minerals like lithium in qualifying countries like Australia and Chile, two of the largest lithium producing countries in the world, said Jennings-Gray of Benchmark Mineral Intelligence. "So I don't think there's going to be the availability from those countries to fill that gap."

Is change possible?

Under the proposed policy, an EV could qualify for half of the credit if at least 40% of its battery minerals are mined or processed in the U.S. or free trade countries before 2024. It ramps up every year until it requires 80% after 2026.

The other half would come from meeting a percentage of battery components made or assembled in North America, beginning at 50% before 2024 and hitting 100% by 2029.

SAFE is pushing to open the limitations to non-NATO allies like Argentina and Brazil, which are major mineral producers, or Japan, which can help with chemical processing.

Wulf said as it stands, it would be "very difficult" for an automaker to qualify for the full credit. But she added that they may be able to take advantage of the requirements for North American production — especially if it applies to the whole battery and not just the cells.

"That will be up to the IRS to determine what flies," she said. 

The mining industry is advocating for Democrats to keep the bill the same, arguing the legislation will incentivize domestic production and is already generous enough to be used by automakers. 

Todd Malan, chief external affairs officer and head of climate strategy at Talon Metals, said the bill "struck a pretty careful balance."

"What this is going to take is a national effort," he said. "Automakers are going to have to partner with mining companies and processing companies."

Indeed, many of them already are. General Motors has supply agreements with Glencore and Controlled Thermal Resources to source cobalt and lithium, respectively. Ford has a non-binding agreement to buy lithium from Compass Minerals and Stellantis also has a deal with Controlled Thermal Resources. Tesla Inc. has a nickel supply agreement with Talon Metals. 

As President Joe Biden's own Department of Energy reported last year, building up EV mineral operations in time to meet the accelerating EV demand "can pose a significant challenge." It can take seven to 10 years to build a mine, for example. 

That's why proponents of the EV tax credit are pushing for changes — they argue the credits won't be fully used when they're most helpful, at the early stages of EV adoption that are expected to come in the next several years.

Sen. Debbie Stabenow, D-Lansing, one of the major proponents of the EV tax credits, called the final text a "cumbersome, unworkable" policy and said "there's conversations going on."

Some individual automakers are still voicing their support for the bill. GM CEO Mary Barra said Thursday that the goals "cannot be achieved overnight" but said she was confident their investments in EV mineral supplies "will establish the U.S. as a global leader today and in the future."

Manchin, D-West Virginia, who negotiated the legislation with Senate Majority Leader Chuck Schumer of New York, has said he's not interested in tweaking it. 

Automakers need "to get aggressive and make sure that we're extracting in North America, we're processing in North America and we put a line on China," Manchin told reporters Tuesday. "I don't believe that we should be building a transportation mode on the backs of foreign supply chains and I'm not going to do it."

Twitter: @rbeggin